So... it's just like anything else in the financial sector? Even FDIC doesn't meaningfully insure your nest egg, and you wouldn't trust it with a tiny/non-reputable bank or investment firm, for sure. So why call out small Bitcoin exchanges when you wouldn't trust a small bank or the guy next door wanting to invest your money, either?

That's the main hurdle these digital currencies have, people need reputable exchanges/businesses they can trust, but those don't develop unless the currency is being used. It's a chicken and egg dilemma, and it's commonly found in tech that black market activities break out of that problem by providing one without the other. Bitcoin isn't the first technology to be driven into legitimacy this way.

Whenever I see someone say "only gamblers and drug dealers use Bitcoin", I try to remember that we may not have affordable DVD burners if people weren't pirating; there would have been no mass market. If you're trying to buy prescription drugs online, you may not care that it's risky to use a particular exchange that nobody has ever heard of, but eventually with enough activity the reputable and legitimate players will step in (or someone will be successful enough to go legit). Like CNBC having a ticker for bitcoin now, the sheer amount of money involved is starting to lend legitimacy to it.. But someone has to take the risk in order to make it work and push it to critical mass in the first place.

Anyone else starting to think Bitcoin is turning out to be a Ponzi Scheme?

Naaah, Ponzi or pyramidal schemes are completely different as far as I understand. There was no need to keep bitcoins or currency flowing from bottom to top and there was no need to get more people at the bottom.

What you have here is a bubble that went kapputt, like many ones that have happened before. Instead of being something that you can touch and smell, e.g. tulips or houses, only virtual currency has been affected. Only the people that were betting on bitcoins have noticed anything. Life goes on.

Anyone else starting to think Bitcoin is turning out to be a Ponzi Scheme?

No, bitcoins are a bizzaro commodities market, where the commodity is an experimental currency.

It, like any currency, is just a medium of exchange. Unlike most currencies, however, it is not backed by an externally valuable commodity (i.e. gold), nor by the faith and credit in the economy which created them (fiat currencies). It is backed by the faith in their cryptographic strength. There are many examples of successful virtual currencies (EVE, TF2 hats, D3), and many, many examples of failed virtual currencies (what's a linden dollar? When's the last time you bought gold for Ultima Online?). Bitcoin has an advantage that it's not tied down to a single application so there's no single point of failure (such as the popularity of the application waning). But it also has a disadvantage that it is not tied to a single application, so it cannot, inherently, be used for anything - it must be converted to a more useful form or you have to find someone willing to trade directly.

And really, that's the kicker. Bit Coin is starting to get popular enough that it's being increasingly targeted by attacks, but isn't *quite* popular enough that it's easy to find someone willing to trade directly. If it continues to be popular and secure, we might see more and more companies willing to provide tangible goods for bitcoins directly. That will be the critical mass that transforms it from "odd commodity" to "actual currency."

Anyone else starting to think Bitcoin is turning out to be a Ponzi Scheme?

No, bitcoins are a bizzaro commodities market, where the commodity is an experimental currency.

It, like any currency, is just a medium of exchange. Unlike most currencies, however, it is not backed by an externally valuable commodity (i.e. gold), nor by the faith and credit in the economy which created them (fiat currencies). It is backed by the faith in their cryptographic strength. There are many examples of successful virtual currencies (EVE, TF2 hats, D3), and many, many examples of failed virtual currencies (what's a linden dollar? When's the last time you bought gold for Ultima Online?). Bitcoin has an advantage that it's not tied down to a single application so there's no single point of failure (such as the popularity of the application waning). But it also has a disadvantage that it is not tied to a single application, so it cannot, inherently, be used for anything - it must be converted to a more useful form or you have to find someone willing to trade directly.

And really, that's the kicker. Bit Coin is starting to get popular enough that it's being increasingly targeted by attacks, but isn't *quite* popular enough that it's easy to find someone willing to trade directly. If it continues to be popular and secure, we might see more and more companies willing to provide tangible goods for bitcoins directly. That will be the critical mass that transforms it from "odd commodity" to "actual currency."

There's also a problem of having to revalue any goods or services you sell via BTC every few hours given the dramatic shifts in price. For a bunch of sound money cyber-goldbugs bitcoin dans should know better than to try to pretend like their speculative dunning-kruggerand could ever be used as a currency except in the most fringe circumstances.

If there are 40 bitcoin exchanges agencies and Mt. Gox handles 40,000 transactions per day and the average number of bitcoin transactions per day per exchange is 1716, it sounds like Mt. Gox handles over 2/3 of all transactions.

Except that it doesn't really mean that... The figure for Mt. Gox is what they claim that "at their peak" they handle "more than" 40000 transactions/day whereas the figure for the other exchanges is what they call a "mean average" by which I suppose the author means that it's the mean over all agencies of the average number of transactions per day. The numbers just aren't comparable.

Sadly, this kind of reporting we get from the press, even the geek press. Numbers that aren't comparable are mentioned in the same breath, with little comment about the significance of those numbers.

At least the grammar at Wired U.K. is a little better than the median over all US press organizations. Queen's English and all that, I suppose.

I see I'm getting a lot of downvotes for my previous comment, but I don't see anyone saying why I'm wrong.

You are probably getting downvoted because of your ridiculous assertion that the FDIC doesn't meaningfully protect anyone's nest egg; a statement that is clearly false for most definitions of "meaningfully" and "nest egg."

Even if government is as just and fair as humanely possible, they are still subject to make mistakes, as they are just humans.

There is absolutely nothing except financial pressure that prevents Bllizzard from pulling the plug form Diable 3 servers and destroying all virtual gold there on your account. For now it's probably safe, but on the long run?

Elliptic crypto on the other hand... Unless Quantum Computing becomes a reality, it's very unlikely to get broken.

The thing is that if you have to believe and trust something, math is the only thing in the entire universe that you don't have to believe blindly.

I don't say BTC is perfect. It's far from it, but it illustrates some of the shortcomings of normal currency-systems and provides some solutions to them. Maybe something better will take it's place, but I can't see any reason why a community based crypto-currency couldn't exists in some form.

I guess I don't understand something about bitcoins. Could I go to Mt. Gox, buy some Bitcoins, "download" them to a computer I don't connect to the internet, and be confident that my "investment" is safe?

The article makes it sound like you have to store your bitcoins in an exchange, and so, if that exchange is compromised, you lose your bitcoins.

To those asserting that bitcoin is a failure because of volatility and failed middle-man security measures:

Bitcoin is a successful experiment in setting up and using a virtual currency. It does not matter whether it is still used years from now. It is successful because there are lessons being learned, and even if it fades away, there definitely would be successors built on what has been learned and more development of the open-source software.

Yes, people can gamble on anything, and tend to lose badly at times. Their fate has little to do with bitcoins other than the effect they have on volatility.

In the mean time, people are using bitcoins for successful transactions where anonymity and ease of foreign transactions are valued. Its value for these short-term transactions does not depend on how widely it is used, and only weakly on volatility. These are not the currency speculators you are talking about, but serve as the solid basis for continuing use of the currency for transactions, whatever its current value.

Storing cash, valuable jewels, or bitcoins with a middle-man is a separate matter. It adds convenience, but invites loss. This is nothing unique to bitcoins.

I guess I don't understand something about bitcoins. Could I go to Mt. Gox, buy some Bitcoins, "download" them to a computer I don't connect to the internet, and be confident that my "investment" is safe?

The article makes it sound like you have to store your bitcoins in an exchange, and so, if that exchange is compromised, you lose your bitcoins.

You don't have to store your bitcoins in an exchange -- it just makes things more convenient.

Real Life Example:

You have $100 cash. You can a) shove it under your mattress or b) stick it in a bank.

Imagine this scenario: You're out and about want to go buy a McDonalds Hamburger.

In case (a) you have to go home, flip up the mattress, find your money, go back to McDonalds and buy your hamburger. In case (b) you whip out your debit card and buy a hamburger.

The reason why this isn't even a choice in the real world is the FDIC that says "if your bank goes under, it's cool, we got you covered." You aren't at risk of losing your $100 by letting someone else hold on to it. There is, however, no FDIC-equivalent for Bitcoin exchanges. In fact, there's no real way to distinguish between "that guy on the corner shuffling cards on a fold-up table" and "Bank of America" just by looking at them. Just like you wouldn't trust your money to the hustler, you shouldn't trust your bitcoins to just any old exchange -- hence the problem mentioned in the article. An exchange has to start up and be used enough to become trusted for people to use it. But, wait, who's using an untrusted exchange in the first place?! Cue exchange death. And since no FDIC, and some of the exchanges were probably scams in the first place... You've just lost your money. Which makes it even more important to only use trusted exchanges which exacerbates the problem.

I guess I don't understand something about bitcoins. Could I go to Mt. Gox, buy some Bitcoins, "download" them to a computer I don't connect to the internet, and be confident that my "investment" is safe?

The article makes it sound like you have to store your bitcoins in an exchange, and so, if that exchange is compromised, you lose your bitcoins.

You don't have to store your bitcoins in an exchange -- it just makes things more convenient.

Real Life Example:

You have $100 cash. You can a) shove it under your mattress or b) stick it in a bank.

Imagine this scenario: You're out and about want to go buy a McDonalds Hamburger.

In case (a) you have to go home, flip up the mattress, find your money, go back to McDonalds and buy your hamburger. In case (b) you whip out your debit card and buy a hamburger.

The reason why this isn't even a choice in the real world is the FDIC that says "if your bank goes under, it's cool, we got you covered." You aren't at risk of losing your $100 by letting someone else hold on to it. There is, however, no FDIC-equivalent for Bitcoin exchanges. In fact, there's no real way to distinguish between "that guy on the corner shuffling cards on a fold-up table" and "Bank of America" just by looking at them. Just like you wouldn't trust your money to the hustler, you shouldn't trust your bitcoins to just any old exchange -- hence the problem mentioned in the article. An exchange has to start up and be used enough to become trusted for people to use it. But, wait, who's using an untrusted exchange in the first place?! Cue exchange death. And since no FDIC, and some of the exchanges were probably scams in the first place... You've just lost your money. Which makes it even more important to only use trusted exchanges which exacerbates the problem.

Thank you. So, that's what I thought. In consideration of everything you said, it doesn't make sense why anyone would actually store their bitcoins in an exchange. People store their money in banks because of the FDIC (and vaults, etc).

For instance, with my bank, I have a few accounts. I have an "online" account that I transfer money into when I need to use a card number online. That account only ever has money in it that I intend to use right away. Well, I keep a couple bucks in there for convenience, but certainly not the whole shebang. Then I have other accounts. If I owned any bitcoins and actually expected to "use" them then I would put them in an exchange moments before I used them. Why would anyone actually store the bulk of their bitcoins in an exchange?

Bitcoin exchanges operate in a free market economy, which means there's some space for uncertainties. There's a process of selection of the fittest happening among these exchanges. The ones that happen to attract clients will win and the rest will probably perish.

There's also a set of artificial barriers that exchanges must overcome, including navigating the legal and regulatory landscape. Many small exchanges cannot do this.

Mt. Gox was simply the first exchange, and benefits from first mover advantage. They have a poorly developed infrastructure, where it seems that the trading engine runs in the web server itself. But they came first, and have responded adequately to a couple of crisis situations where bitcoins got stolen previously, including one involving another exchange. This makes them worthy of certain trust.

Some people rush to write Bitcoin exchanges, lacking technical expertise or discipline, and get wiped out by crackers or other technical issues. There are really no professional exchanges in the Bitcoin world today. This has to do with the small size of the Bitcoin economy, and legal uncertainties that still make it somewhat risky for larger investors. Nobody wants to build a Bitcoin exchange that will land them in prison or paying large fines.

There's the general perception that most governments and banks, used to controlling the money supply, will declare war on Bitcoin and prosecute investors or other individuals involved with it. It doesn't seem that we're headed in that direction (yet), given recent FinCEN guidance. But money is always a delicate issue, and I assume unless there's a lot to profit to be made in the short term, most larger investors will avoid exposing themselves with too much risk by setting up Bitcoin exchanges. This leaves us bitcoiners in the hands of amateurs for the time being, which I guess it's fine, but comes with additional risk.

Why would anyone actually store the bulk of their bitcoins in an exchange?

Because to actually buy that hamburger, first you have to turn your $100 of magic: the gathering cards into $100 cash, and you can't do that from underneath your mattress (MTGOX = Magic: The Gathering Online Exchange). This is where the greatest weakness of BitCoin that I laid out above comes into play -- very few people actually take bitcoins directly. If you could buy a hamburger using bitcoins, then yeah, you could plug in your flash drive at McDonalds and buy a hamburger. But no McDonalds accepts bitcoins.

So... it's just like anything else in the financial sector? Even FDIC doesn't meaningfully insure your nest egg, and you wouldn't trust it with a tiny/non-reputable bank or investment firm, for sure. So why call out small Bitcoin exchanges when you wouldn't trust a small bank or the guy next door wanting to invest your money, either?

That's the main hurdle these digital currencies have, people need reputable exchanges/businesses they can trust, but those don't develop unless the currency is being used. It's a chicken and egg dilemma, and it's commonly found in tech that black market activities break out of that problem by providing one without the other. Bitcoin isn't the first technology to be driven into legitimacy this way.

Whenever I see someone say "only gamblers and drug dealers use Bitcoin", I try to remember that we may not have affordable DVD burners if people weren't pirating; there would have been no mass market. If you're trying to buy prescription drugs online, you may not care that it's risky to use a particular exchange that nobody has ever heard of, but eventually with enough activity the reputable and legitimate players will step in (or someone will be successful enough to go legit). Like CNBC having a ticker for bitcoin now, the sheer amount of money involved is starting to lend legitimacy to it.. But someone has to take the risk in order to make it work and push it to critical mass in the first place.

The last time this many banks ended up going bust was the Great Depression. Since then, banks have undergone both regulation and government protection. The government did this because it recognized the importance of banks as both stores of money and as a mechanism for providing credit. I think we all remember how many large banks were bailed out back in 2008. Unfortunately, the alternative to that (the banks going bust) would have been much worse.

Bitcoin is an attempt to provide a currency that can operate outside of this regulatory framework, and so Bitcoin exchanges are inherently more volatile. You cannot control the Bitcoin supply readily, whereas the Federal Reserve can control the money supply readily. The consequence is that a Bitcoin market is going to have the equivalent of huge bank panics just like the "real" market did before the Fed evolved to the point where it's at today.

Why would anyone actually store the bulk of their bitcoins in an exchange?

Because to actually buy that hamburger, first you have to turn your $100 of magic: the gathering cards into $100 cash, and you can't do that from underneath your mattress (MTGOX = Magic: The Gathering Online Exchange). This is where the greatest weakness of BitCoin that I laid out above comes into play -- very few people actually take bitcoins directly. If you could buy a hamburger using bitcoins, then yeah, you could plug in your flash drive at McDonalds and buy a hamburger. But no McDonalds accepts bitcoins.

Obvioiusly a sarcastic response that correctly points out that McDonald's does not currently accept Bitcoin, as well as most other commerces. I don't believe anyone expects that Bitcoin got invented in 2009 and suddenly everyone will accept it four years later, without some sort of coercive power backing it. It is naïve. Bitcoins will get accepted when and if a particular merchant decide to do it. I do expect however that one day McDonald's will indeed accept Bitcoin as a form of payment.

Now, assuming that you'll pay for something using Bitcoin at, say, bitcoinstore.com (a Bitcoin accepting merchant), you will not need the actual bitcoins to be held at an exchange. They can reside in any of your computing devices, perhaps a mobile phone or your main computer, and still be easily used to pay for whatever you wish to buy. The mattress analogy only applies to Bitcoin if you put them in an offline device. In that case spending them would require a little more effort.

My point is that you don't need to accept counter-party risk to store your bitcoins in a way that makes them ready to be spent. You do not need to have the bitcoins at a wallet in an exchange in order to use them, unless your intended use is merely as a speculation vehicle and you intend to exchange them into fiat currency and back very frequently. But in that case I assume you'd know quite a bit about risk management.

I guess I don't understand something about bitcoins. Could I go to Mt. Gox, buy some Bitcoins, "download" them to a computer I don't connect to the internet, and be confident that my "investment" is safe?

The article makes it sound like you have to store your bitcoins in an exchange, and so, if that exchange is compromised, you lose your bitcoins.

You don't have to store your bitcoins in an exchange -- it just makes things more convenient.

Real Life Example:

You have $100 cash. You can a) shove it under your mattress or b) stick it in a bank.

Imagine this scenario: You're out and about want to go buy a McDonalds Hamburger.

In case (a) you have to go home, flip up the mattress, find your money, go back to McDonalds and buy your hamburger. In case (b) you whip out your debit card and buy a hamburger.

The reason why this isn't even a choice in the real world is the FDIC that says "if your bank goes under, it's cool, we got you covered." You aren't at risk of losing your $100 by letting someone else hold on to it. There is, however, no FDIC-equivalent for Bitcoin exchanges. In fact, there's no real way to distinguish between "that guy on the corner shuffling cards on a fold-up table" and "Bank of America" just by looking at them. Just like you wouldn't trust your money to the hustler, you shouldn't trust your bitcoins to just any old exchange -- hence the problem mentioned in the article. An exchange has to start up and be used enough to become trusted for people to use it. But, wait, who's using an untrusted exchange in the first place?! Cue exchange death. And since no FDIC, and some of the exchanges were probably scams in the first place... You've just lost your money. Which makes it even more important to only use trusted exchanges which exacerbates the problem.

So Astramancer: You didn't make it clear as to whether Mr. 3 Card Monte or Bank of America is the more trustworthy hustler.

Here's the business plan. Open a BC exchange. Of course you have to get cleared funds before you buy any for customers there's no chargebacks in BC. When you sell BC for cash, you have fully to confirm receipt of BC before you start - that the period needed for all the players to agree the blockchain makes it unlikely they'll fork BC and change their mind - give it an hour or so then send the cash. The point being the customers have to trust you - you don't trust the customers and you're always holding their money before they get any of yours. As more suckers get drawn in and use your exchange wait until you have the maximum possible positive cashflow position and then cut and run.

Aw shucks - looks like a number of exchange operators have already thought of that.

There seems to be a discrepancy between the "381 days median lifespan" and "29.9 percent chance that a new exchange will close within a year of opening" figures. The first one implies that circa 50% of new exchanges close within 381 days where the second says that 29.9% close within 365-ish days. That would imply that 30.1% of new exchanges close in the 16 days in between, which seems highly unrealistic. While both those figures can be found in the original article, I believe they may be associated with different models. Can someone enlighten me?

Anyone else starting to think Bitcoin is turning out to be a Ponzi Scheme?

Naaah, Ponzi or pyramidal schemes are completely different as far as I understand. There was no need to keep bitcoins or currency flowing from bottom to top and there was no need to get more people at the bottom.

What you have here is a bubble that went kapputt, like many ones that have happened before. Instead of being something that you can touch and smell, e.g. tulips or houses, only virtual currency has been affected. Only the people that were betting on bitcoins have noticed anything. Life goes on.

Maybe Im understanding you wrong, but "...went kaputt" seems like an inaccurate description. When the internet bubble burst, the internet did not go kaputt and it did not stop being profitable, it simply stabilized and continued to grow at a slower and more maintainable pace. The same goes for bitcoin I think. Sure they dont trade for the 300$ per bitcoin they did before the bubble burst, but a single bitcoin is still worth over 130$, still worth a lot more than when it started out. Litecoin, one of its competitors you could say, which is based on bitcoin to an extent, in comparison is only trading at around 3$ per coin. It is a commodity like any other and just because it is "virtual" doesnt change a thing. The value of the US dollar is just as virtual other than the printed bills, and its value, accordingly, is based on a number of the same factors including consumer confidence. Start printing "bitbills" backed by digital bitcoins, and BAM, youve got yourself an international currency not much different than any other fiat currency.

So... it's just like anything else in the financial sector? Even FDIC doesn't meaningfully insure your nest egg, and you wouldn't trust it with a tiny/non-reputable bank or investment firm, for sure. So why call out small Bitcoin exchanges when you wouldn't trust a small bank or the guy next door wanting to invest your money, either?

That's the main hurdle these digital currencies have, people need reputable exchanges/businesses they can trust, but those don't develop unless the currency is being used. It's a chicken and egg dilemma, and it's commonly found in tech that black market activities break out of that problem by providing one without the other. Bitcoin isn't the first technology to be driven into legitimacy this way.

Whenever I see someone say "only gamblers and drug dealers use Bitcoin", I try to remember that we may not have affordable DVD burners if people weren't pirating; there would have been no mass market. If you're trying to buy prescription drugs online, you may not care that it's risky to use a particular exchange that nobody has ever heard of, but eventually with enough activity the reputable and legitimate players will step in (or someone will be successful enough to go legit). Like CNBC having a ticker for bitcoin now, the sheer amount of money involved is starting to lend legitimacy to it.. But someone has to take the risk in order to make it work and push it to critical mass in the first place.

You have explained it really well and logically accurate. Trust is key here, not the near perfect mathematical model of the hashing system which many here seem to not understand, pity. As of this comment, your post had 11+ and 13- votes... that is quite a 1. Ignorant people who have no basic understanding of the system, or 2. Know it all and deny simply because of a feared revolutionary change of digital currency, that sooner or later... will reign in complete and direct conjunction of rising corrupt powers of the world towards it's 'lower' citizens. Like if they were forced to use such system, but yet fear it to hell, sad.

Anyone else starting to think Bitcoin is turning out to be a Ponzi Scheme?

Naaah, Ponzi or pyramidal schemes are completely different as far as I understand. There was no need to keep bitcoins or currency flowing from bottom to top and there was no need to get more people at the bottom.

What you have here is a bubble that went kapputt, like many ones that have happened before. Instead of being something that you can touch and smell, e.g. tulips or houses, only virtual currency has been affected. Only the people that were betting on bitcoins have noticed anything. Life goes on.

Maybe Im understanding you wrong, but "...went kaputt" seems like an inaccurate description. When the internet bubble burst, the internet did not go kaputt and it did not stop being profitable, it simply stabilized and continued to grow at a slower and more maintainable pace. The same goes for bitcoin I think. Sure they dont trade for the 300$ per bitcoin they did before the bubble burst, but a single bitcoin is still worth over 130$, still worth a lot more than when it started out. Litecoin, one of its competitors you could say, which is based on bitcoin to an extent, in comparison is only trading at around 3$ per coin. It is a commodity like any other and just because it is "virtual" doesnt change a thing. The value of the US dollar is just as virtual other than the printed bills, and its value, accordingly, is based on a number of the same factors including consumer confidence. Start printing "bitbills" backed by digital bitcoins, and BAM, youve got yourself an international currency not much different than any other fiat currency.

As has been noted earlier in this thread, one of the key differences between a Bitcoin and a dollar is control over the supply. The supply of Bitcoins cannot be centrally controlled, whereas the national money supply is centrally controlled through the Federal Reserve. Without control over the Bitcoin supply, the value of the currency will continue to fluctuate leading to the equivalent of bank panics. This is precisely why the Federal Reserve was created in the first place.

Anyone else starting to think Bitcoin is turning out to be a Ponzi Scheme?

Naaah, Ponzi or pyramidal schemes are completely different as far as I understand. There was no need to keep bitcoins or currency flowing from bottom to top and there was no need to get more people at the bottom.

What you have here is a bubble that went kapputt, like many ones that have happened before. Instead of being something that you can touch and smell, e.g. tulips or houses, only virtual currency has been affected. Only the people that were betting on bitcoins have noticed anything. Life goes on.

Maybe Im understanding you wrong, but "...went kaputt" seems like an inaccurate description. When the internet bubble burst, the internet did not go kaputt and it did not stop being profitable, it simply stabilized and continued to grow at a slower and more maintainable pace. The same goes for bitcoin I think. Sure they dont trade for the 300$ per bitcoin they did before the bubble burst, but a single bitcoin is still worth over 130$, still worth a lot more than when it started out. Litecoin, one of its competitors you could say, which is based on bitcoin to an extent, in comparison is only trading at around 3$ per coin. It is a commodity like any other and just because it is "virtual" doesnt change a thing. The value of the US dollar is just as virtual other than the printed bills, and its value, accordingly, is based on a number of the same factors including consumer confidence. Start printing "bitbills" backed by digital bitcoins, and BAM, youve got yourself an international currency not much different than any other fiat currency.

As has been noted earlier in this thread, one of the key differences between a Bitcoin and a dollar is control over the supply. The supply of Bitcoins cannot be centrally controlled, whereas the national money supply is centrally controlled through the Federal Reserve. Without control over the Bitcoin supply, the value of the currency will continue to fluctuate leading to the equivalent of bank panics. This is precisely why the Federal Reserve was created in the first place.

No, the FED was created by private banking moguls so they could control the economy as they pleased, as were all central banks. The US dollar for example fluctuates based on consumer confidence. You make a good point over control over the supply, but you have some of it wrong. When an individual or a group controls the supply of currency, such as a central bank, they in essence control the economy. This is not a good thing. Bitcoin on the other hand is control not by a central authority, but by the very nature of its existence. The only way to create new bitcoins is by "mining" them. In order to do this you must solve a cryptographic equation which takes time and specialized equipment to do efficiently. The way bitcoin mining is doing it, the more processing power comes online to mine new bitcoins, the slower they are produced. This is controlled by a "difficulty" level. The way it is setup makes it so that the supply is very controlled and only so many new bitcoins can be produced through mining over a given period, regardless of how many people are running mining rigs, or how fast those rigs are. So the supply is controlled, just not by a central authority. There is actually a finite # of bitcoins that can ever be produced under this system. From what Im told only about 20% of those have been mined to date. This is an emerging market. Those who get in early stand to profit immensely, but there are risks involved and nothing is guaranteed, as is the case in pretty much all business. In the end, the profits will drop off, where the only real profit is going to be the maintainer of each block chain(block of bitcoins, sort of) will take the processing fees for each transaction associated with their block chain and no coins will be awarded for creating the block chain as they are now(bit mining is the creation of a workable block chain through solving cryptographic hash functions). You might argue but but but market manipulation and Id argue that if you think that people dont manipulate the existing stock and currency markets youre kidding yourself. Of course the digital world has its own sets of problems, but those involved are getting better at protecting themselves, something the current markets have already done in the past. Again, emerging market, lots of money, lots of risk, but not much different, other than being digital and without borders, then any other emerging market that has ever existed.

Centralized? Why, so a single entity(s) can have power over digital markets the way current banking giants do our current economy? De-centralization means no one gets that power, the way it should be.

Wrong. You have a very prey mentality. You need to think like a predator.

Decentralization is very, very bad for an economic system. The entire purpose of money is centralization - everyone sees the money as being of equal value, and therefore it can be used as a means of economic exchange. Decentralization destroys that.

Bitcoin sucks. It is hugely susceptible to manipulation (see: MTGox, the extreme fluctuations in price), it is centralized anyway (again, see MTGox), it is not the only possible cryptocurrency (indeed, anyone could make a cryptocurrency of their own, and if they only take one or another, it hurts the values of all other such currencies; people can make an infinite number of said fake currencies), and it has no one backing it (e.g. it has no real value). The US government backs the US dollar, and other governments back various currencies of their own.

If you have a single central authority, then you have someone who is backing it, and you know that it has some value. It not only allows the value to be much more fixed, but it also means that the currency is actually worth something. If, say, Microsoft or Google had their own currency, that would be far superior to Bitcoin - you've got a trusted authority who actually can give you something for your money, thus proving it has real value.

Bitcoin can be manipulated as easily as any other currency, and due to the shady people involved, it is much less trustworthy than a currency like Microsoft Micros or Google Plexes or whatever you want to call your money.

Does it give them power? Sure. But in truth, they have a great deal of incentive NOT to abuse said power; abusing the power can easily destroy the currency. Refusing to abuse your power means that your currency becomes trustworthy and a standard, and you being at the center of an economy is worth far more than any transient gains you might gain via fraud and manipulation.

I guess I don't understand something about bitcoins. Could I go to Mt. Gox, buy some Bitcoins, "download" them to a computer I don't connect to the internet, and be confident that my "investment" is safe?

The article makes it sound like you have to store your bitcoins in an exchange, and so, if that exchange is compromised, you lose your bitcoins.

You store your Bitcoin a wallet.dat file. Just keep it on an USB stick or whatever, and it's safe (unless someone steals the USB stick, or it breaks).

I have no clue why anyone would use an exchange. Maybe because they're afraid of malware on their PC?